Essex Property Trust(ESS) - 2025 Q2 - Quarterly Results

Earnings Press Release Second Quarter 2025 Results and Full-Year Guidance Update Essex Property Trust announced strong second quarter 2025 results, with a significant increase in Net Income per share to $3.44, driven by a gain on the sale of real estate, leading to a raised full-year 2025 guidance for Core FFO, same-property revenues, and Net Operating Income (NOI) Q2 & H1 2025 Financial Performance (Per Diluted Share) | | Three Months Ended | % Change | Six Months Ended | % Change | | :--- | :--- | :--- | :--- | :--- | | | June 30, 2025 | YoY | June 30, 2025 | YoY | | Net Income | $3.44 | 137.2% | $6.59 | 15.8% | | Total FFO | $4.03 | 3.6% | $8.00 | -5.8% | | Core FFO | $4.03 | 2.3% | $8.00 | 3.0% | Revised Full-Year 2025 Guidance | Guidance Metric | Revised Range | Revised Midpoint | Change at Midpoint | | :--- | :--- | :--- | :--- | | Net Income per diluted share | $10.05 - $10.29 | $10.17 | +$0.73 | | Core FFO per diluted share | $15.80 - $16.02 | $15.91 | +$0.10 | | Same-Property Revenues | 2.90% to 3.40% | 3.15% | +0.15% | | Same-Property Operating Expenses | 3.00% to 3.50% | 3.25% | (0.50%) | | Same-Property NOI | 2.70% to 3.50% | 3.10% | +0.40% | - Core FFO per diluted share exceeded the midpoint of the Company's guidance by $0.07, primarily due to higher same-property revenue growth and favorable property taxes in Washington[11] - The company acquired two apartment communities in Northern California for $240.5 million and disposed of one in Southern California for $239.6 million[11] Same-Property Operations For Q2 2025, the same-property portfolio demonstrated solid growth, with revenues increasing by 3.2% and Net Operating Income (NOI) by 3.3% year-over-year, led by Northern California's 3.4% revenue growth and a significant sequential NOI increase in Seattle Metro Same-Property Revenue Growth by Region (Q2 2025) | Region | YoY (vs. Q2 2024) | YTD (vs. YTD 2024) | QoQ (vs. Q1 2025) | | :--- | :--- | :--- | :--- | | Southern California | 3.1% | 3.5% | 0.5% | | Northern California | 3.4% | 3.5% | 1.2% | | Seattle Metro | 2.8% | 2.5% | 1.5% | | Same-Property Portfolio | 3.2% | 3.3% | 1.0% | Same-Property NOI Growth by Region (Q2 2025) | Region | YoY (vs. Q2 2024) | YTD (vs. YTD 2024) | QoQ (vs. Q1 2025) | | :--- | :--- | :--- | :--- | | Southern California | 2.1% | 2.9% | 0.5% | | Northern California | 2.5% | 3.4% | 2.0% | | Seattle Metro | 7.8% | 3.9% | 8.5% | | Same-Property Portfolio | 3.3% | 3.3% | 2.5% | - The 3.2% YoY revenue growth was primarily driven by a 2.3% increase in scheduled rents and a 0.5% positive impact from lower delinquency[13] - Overall portfolio financial occupancy was 96.2% at the end of Q2 2025, unchanged from Q2 2024[16] Investment Activity The company engaged in strategic capital recycling during the quarter, acquiring two communities in Santa Clara County for $240.5 million and selling a property in Santa Ana for $239.6 million, which generated a gain of $126.2 million, followed by a post-quarter sale in Oakland and a new joint venture formation - Acquisitions: Acquired two apartment communities (420 homes) in Santa Clara County for a total of $240.5 million in May[18] - Dispositions: Sold a 350-unit community in Santa Ana, CA for $239.6 million in April, recording a $126.2 million gain. Subsequent to quarter end, sold a 243-unit community in Oakland, CA for $97.5 million[19][20] - Other Investments: Formed a new joint venture, Wesco VII, with a $50.0 million commitment from each partner. The venture originated a $42.6 million preferred equity investment with an initial preferred return of 13.5%[21] Balance Sheet and Liquidity Essex significantly enhanced its financial flexibility and liquidity by securing a new $300.0 million term loan, establishing a $750.0 million commercial paper program, and upsizing its unsecured credit facility to $1.5 billion, resulting in approximately $1.5 billion in total liquidity as of late July 2025 - Obtained a new $300.0 million unsecured term loan maturing in May 2028, with $150.0 million drawn as of June 30, 2025[23] - Established a $750.0 million commercial paper program, with $365.0 million outstanding as of June 30, 2025[24] - Subsequent to quarter end, increased its unsecured credit facility from $1.2 billion to $1.5 billion and extended the maturity to January 2030[25] - As of July 25, 2025, the Company had approximately $1.5 billion in liquidity from its credit facilities, cash, and marketable securities[27] Guidance The company has raised its full-year 2025 guidance following a strong second quarter performance that exceeded expectations, with the revised midpoint for Core FFO per diluted share now at $15.91, an increase of $0.10, and third quarter Core FFO projected between $3.89 to $3.99 per diluted share Full-Year 2025 Guidance Revision | Per Diluted Share | Previous Midpoint | Revised Midpoint | Change | | :--- | :--- | :--- | :--- | | Net Income | $9.44 | $10.17 | +$0.73 | | Total FFO | $15.81 | $15.89 | +$0.08 | | Core FFO | $15.81 | $15.91 | +$0.10 | | Same-Property Revenues | 3.00% | 3.15% | +0.15% | | Same-Property NOI | 2.70% | 3.10% | +0.40% | - The company provided third quarter 2025 Core FFO guidance with a range of $3.89 - $3.99 per diluted share and a midpoint of $3.94[33] Q3 2025 Core FFO Guidance Midpoint Reconciliation | | Per Diluted Share | | :--- | :--- | | Core FFO per diluted share for Q2 2025 reported | $4.03 | | Consolidated Revenues | $0.05 | | Consolidated Operating Expenses | ($0.11) | | Structured Finance Investments | ($0.02) | | G&A and Other | ($0.01) | | Guidance midpoint of Core FFO per diluted share for Q3 2025 | $3.94 | FFO Reconciliation This section provides a detailed reconciliation from Net Income to Funds from Operations (FFO) and Core FFO, showing that for Q2 2025, Net Income of $221.4 million was adjusted for items like depreciation ($151.5 million) and gains on sale (-$126.2 million) to arrive at FFO of $268.8 million, with further minor adjustments resulting in a Core FFO of $268.6 million FFO and Core FFO Reconciliation (Q2 2025 vs Q2 2024) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net income available to common stockholders | $221,362 | $92,914 | | Depreciation and amortization | $151,501 | $145,613 | | Gains not included in FFO | ($126,174) | - | | Other adjustments | $22,175 | $20,260 | | FFO attributable to common stockholders | $268,838 | $258,787 | | Non-core adjustments | ($284) | $3,178 | | Core FFO attributable to common stockholders | $268,554 | $261,965 | FFO and Core FFO Per Share (Diluted) | | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | FFO per share | $4.03 | $3.89 | | Core FFO per share | $4.03 | $3.94 | NOI Reconciliation This section reconciles Earnings from Operations to Net Operating Income (NOI) and Same-Property NOI, showing that for Q2 2025, Earnings from Operations of $279.7 million was adjusted for corporate expenses, depreciation, and gains on sale to arrive at a total NOI of $332.2 million, with Same-Property NOI for the quarter at $290.9 million NOI Reconciliation (Q2 2025 vs Q2 2024) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Earnings from operations | $279,700 | $137,450 | | Adjustments (Depreciation, G&A, etc.) | $52,481 | $175,798 | | NOI | $332,181 | $313,248 | | Less: Non-same property NOI | ($41,325) | ($31,667) | | Same-Property NOI | $290,856 | $281,581 | Supplemental Data Consolidated Operating Results The consolidated operating results show a year-over-year increase in total revenues to $469.8 million for Q2 2025 from $442.4 million in Q2 2024, with net income available to common stockholders rising substantially to $221.4 million, largely due to a $126.2 million gain on the sale of real estate Consolidated Operating Results Highlights (in thousands) | | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Revenues | $469,833 | $442,355 | | Earnings from operations | $279,700 | $137,450 | | Net income available to common stockholders | $221,362 | $92,914 | - Property operating expenses increased to $135.4 million in Q2 2025 from $126.5 million in Q2 2024, with notable increases in real estate taxes, personnel costs, and utilities[59] Consolidated Funds from Operations This schedule details the calculation of FFO and Core FFO, showing that for Q2 2025, FFO per diluted share increased by 3.6% to $4.03, while Core FFO per diluted share grew by 2.3% to $4.03, and for the six months ended June 30, 2025, Core FFO per share increased by 3.0% to $8.00 FFO and Core FFO Per Share Performance | Per Share - Diluted | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | FFO | $4.03 | $3.89 | 3.6% | | Core FFO | $4.03 | $3.94 | 2.3% | | | YTD 2025 | YTD 2024 | % Change | | FFO | $8.00 | $8.49 | -5.8% | | Core FFO | $8.00 | $7.77 | 3.0% | Consolidated Balance Sheets The consolidated balance sheet as of June 30, 2025, shows total assets of $13.18 billion, a slight increase from $12.93 billion at year-end 2024, with total liabilities increasing to $7.34 billion from $7.18 billion, primarily due to an increase in lines of credit and commercial paper outstanding Balance Sheet Summary (in thousands) | | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $13,181,490 | $12,927,359 | | Total Liabilities | $7,342,654 | $7,176,120 | | Total Equity | $5,805,914 | $5,720,390 | Debt Summary As of June 30, 2025, the company's total debt stood at $6.76 billion with a weighted average interest rate of 3.7% and a weighted average maturity of 6.6 years, primarily composed of unsecured bonds and term loans with a maturity profile extending beyond 2035 Total Debt Profile as of June 30, 2025 | Metric | Value | | :--- | :--- | | Total Debt, net | $6,759,454 thousand | | Weighted Average Interest Rate | 3.7% | | Weighted Average Maturity | 6.6 years | - The company's debt is primarily unsecured ($5.52 billion) compared to secured mortgage notes ($0.87 billion)[67] Capitalization and Credit Ratios As of June 30, 2025, Essex's total market capitalization was $25.66 billion, with a debt-to-total market capitalization ratio of 26.3%, maintaining investment-grade credit ratings of Baa1 from Moody's and BBB+ from Standard & Poor's, and remaining in compliance with all public bond covenants - Total market capitalization was $25.66 billion, with a debt-to-market cap ratio of 26.3%[69] - Credit ratings are stable at Baa1 (Moody's) and BBB+ (Standard & Poor's)[69] Key Credit Metrics | Metric | Actual | Requirement | | :--- | :--- | :--- | | Debt to Total Assets | 35% | < 65% | | Secured Debt to Total Assets | 4% | < 40% | | Interest Coverage | 524% | > 150% | | Net Indebtedness / Adjusted EBITDAre | 5.5x | N/A | Portfolio Summary As of June 30, 2025, the company's portfolio consisted of interests in 63,385 apartment homes across Southern California, Northern California, and the Seattle Metro area, with Southern and Northern California contributing 40.8% and 41.1% of total NOI, respectively, and an average monthly rental rate of $2,707 Portfolio Breakdown by Region (at Company's pro rata share) | Region | Total Apartment Homes | Average Monthly Rent | % of Total NOI | | :--- | :--- | :--- | :--- | | Southern California | 25,889 | $2,670 | 40.8% | | Northern California | 24,627 | $2,987 | 41.1% | | Seattle Metro | 12,869 | $2,251 | 18.1% | | Total | 63,385 | $2,707 | 100.0% | Operating Income by Quarter This schedule shows a consistent trend of rising same-property revenues and NOI over the past five quarters, with same-property NOI increasing from $281.6 million in Q2 2024 to $290.9 million in Q2 2025, and blended net effective rate growth for leases at 3.0% in Q2 2025 Quarterly Same-Property NOI (in thousands) | Quarter | Same-Property NOI | | :--- | :--- | | Q2 2024 | $281,581 | | Q3 2024 | $279,921 | | Q4 2024 | $281,075 | | Q1 2025 | $283,663 | | Q2 2025 | $290,856 | Same-Property Net Effective Rate Growth (Q2 2025) | Lease Type | Rate Growth | | :--- | :--- | | New Lease | 0.7% | | Renewal | 4.2% | | Blended | 3.0% | Same-Property Results by County This section provides a granular breakdown of same-property revenue growth by county, with San Francisco showing the highest year-over-year revenue growth at 6.5% in Q2 2025, and San Mateo (4.7%) and San Francisco (6.6%) being the top performers year-to-date Top 3 Same-Property Revenue Growth by County (Q2 2025 vs Q2 2024) | County | Revenue Growth | | :--- | :--- | | San Francisco | 6.5% | | San Mateo County | 4.2% | | Orange County | 3.5% | Top 3 Same-Property Revenue Growth by County (YTD 2025 vs YTD 2024) | County | Revenue Growth | | :--- | :--- | | San Francisco | 6.6% | | San Mateo County | 4.7% | | Ventura County | 4.2% | Same-Property Operating Expenses Total same-property operating expenses increased by 2.9% year-over-year in Q2 2025, driven primarily by a 13.7% rise in maintenance and repairs and a 9.9% increase in utilities, while real estate taxes decreased by 3.7% for the quarter, with year-to-date total expenses up 3.3% Same-Property Operating Expense Growth (Q2 2025 vs Q2 2024) | Expense Category | % Change YoY | | :--- | :--- | | Maintenance and repairs | 13.7% | | Utilities | 9.9% | | Personnel costs | 6.1% | | Real estate taxes | -3.7% | | Total | 2.9% | Development Pipeline As of June 30, 2025, the company's development pipeline includes one consolidated project, 7 South Linden in South San Francisco, a 543-unit project with an estimated total cost of $311 million, expected to start construction in Q1 2025 and stabilize in Q1 2030, alongside land held for future development Consolidated Development Project: 7 South Linden | Metric | Value | | :--- | :--- | | Location | South San Francisco, CA | | Apartment Homes | 543 | | Estimated Total Cost | $311 million | | Construction Start | Q1 2025 | | Stabilized Operations | Q1 2030 | Capital Expenditures In Q2 2025, the company incurred $20.0 million in revenue-generating capital expenditures and $35.8 million in non-revenue-generating capital expenditures, with total capital expenditures amounting to $199.6 million over the trailing four quarters Capital Expenditures (in thousands) | Category | Q2 2025 | Trailing 4 Quarters | | :--- | :--- | :--- | | Revenue Generating | $20,017 | $80,959 | | Non-Revenue Generating | $35,822 | $118,674 | Co-investments and Preferred Equity Investments As of June 30, 2025, the company held investments in operating joint ventures totaling 7,694 apartment homes, which generated $22.8 million in NOI at Essex's share for Q2, and $445.5 million in preferred equity investments with a weighted average return of 9.2%, generating $9.3 million in income for the quarter Investment Summary (Q2 2025) | Investment Type | Essex Book Value | Income Generated | | :--- | :--- | :--- | | Operating JVs | $360,921 thousand | $22,831 thousand (NOI) | | Preferred Equity | $445,511 thousand | $9,317 thousand | Acquisitions and Dispositions Year-to-date as of June 30, 2025, Essex acquired 1,039 apartment homes for a total of $585.9 million, primarily in Northern California, and disposed of 605 homes for $366.6 million, mainly in Southern California YTD 2025 Transaction Summary | Activity | Apartment Homes | Total Contract Price | | :--- | :--- | :--- | | Acquisitions | 1,039 | $585,875 thousand | | Dispositions | 605 | $366,580 thousand | 2025 FFO Guidance Assumptions This schedule provides the detailed build-up for the full-year 2025 FFO guidance, assuming total NOI between $1.31 billion and $1.32 billion and net interest expense around $253 million, leading to a projected Core FFO per diluted share range of $15.80 to $16.02 Key Full-Year 2025 Guidance Assumptions (Midpoint) | Item | 2025 Guidance Midpoint (in thousands) | | :--- | :--- | | Total NOI from Consolidated Communities | $1,316,900 | | Net interest expense | ($253,000) | | FFO from co-investments | $91,700 | | Core Funds from Operations | $1,061,100 | Reconciliation of Projected EPS, FFO and Core FFO This table reconciles the company's projected Net Income (EPS) to its FFO and Core FFO guidance for Q3 and the full year 2025, showing that for the full year, a projected EPS midpoint of $10.17 is reconciled to a Core FFO per share midpoint of $15.91, with the primary adjustment being for depreciation Full-Year 2025 Guidance Reconciliation (Per Share Midpoints) | | Full-Year 2025 Midpoint | | :--- | :--- | | EPS - diluted | $10.17 | | Depreciation and amortization & other adjustments | $5.74 | | Core FFO per share - diluted | $15.91 | MSA Level Supply Forecast The company forecasts total new residential supply (multifamily and single-family) to be 0.5% of existing stock in 2025, decreasing to 0.4% in 2026, with the Seattle market expected to see the highest relative supply at 1.0% in 2025, while Northern California markets are projected to have very low supply levels Total Residential Supply as a % of Stock | Market | 2025E | 2026E | | :--- | :--- | :--- | | Southern California | 0.4% | 0.4% | | Northern California | 0.4% | 0.3% | | Seattle | 1.0% | 0.6% | | Total | 0.5% | 0.4% | Reconciliations of Non-GAAP Financial Measures and Other Terms This section provides detailed definitions and reconciliations for non-GAAP financial measures used throughout the report, including Adjusted EBITDAre, FFO, Core FFO, and NOI, clarifying calculation methodologies to ensure comparability and transparency for investors - Provides definitions for key terms such as FFO, Core FFO, NOI, Adjusted EBITDAre, Financial Occupancy, and others to clarify the metrics used in the report[104][112][117][123] - Includes detailed table reconciliations for key non-GAAP measures, such as Net Income to Adjusted EBITDAre and Earnings from Operations to Same-Property NOI, aligning with SEC best practices[109][124]